Miranda v. Lake Shore Gold Corporation [Indexed as: Miranda v. Lake Shore Gold Corp.]

103 O.R. (3d) 515

2010 ONCA 597

Court of Appeal for Ontario,

Rosenberg, Goudge and Feldman JJ.A.

September 17, 2010

Contracts -- Interpretation -- Change of control agreement providing that applicant was entitled to payment of $175,200 in event that he ceased to be officer of corporation "within six months of the date on which control of the Corporation changes" -- Application judge erring in finding that "within" meant six months after date of change of control and that applicant was not entitled to payment as he was terminated before change of control -- Agreement entitling applicant to payment if his termination and change of control occurred within six months of each other.

When the applicant became the chief financial officer of the respondent, he and the respondent entered into a change of control agreement which entitled the applicant to a payment of $175,200 if he ceased to be an officer of the corporation for any reason "within six months of the date on which control of the Corporation changes". The applicant was terminated shortly before a change of control occurred. He brought an application for a declaration that he was entitled to the payment. The application judge interpreted the agreement to require that the applicant cease to be CFO after the change of control in order to receive the payment. The application was dismissed. The applicant appealed.

Held, the appeal should be allowed.

Properly interpreted, the agreement entitled the applicant to the payment if, as happened here, his termination as CFO and the change of control of the company occurred within six months of each other. That interpretation was supported by the next paragraph of the agreement, which provided that, if the cessation preceded the change of control, the agreement terminated if the cessation occurred through voluntary resignation. If the first paragraph did not encompass the cessation coming first, that sentence would be meaningless and unnecessary. The intention of the parties reflected in the agreement was to provide a protective mechanism for both the respondent and its officers to retain the officers and ensure their loyalty during the time of uncertainty that arises during a period of change of control. However, that time of uncertainty does not just follow the change of control. It also includes the period during which the change is being brought about. The meaning contended for by the applicant was fully consistent with that commercial purpose.

APPEAL from the judgment of Pattillo J. of the Superior Court of Justice dated January 27, 2010 dismissing an application for a declaration that the applicant was contractually entitled to a particular payment. [page516]

Cases referred to Bell Canada v. The Plan Group (2009), 96 O.R. (3d) 81, [2009] O.J. No. 2829, 2009 ONCA 548, 252 O.A.C. 71, 81 C.L.R. (3d) 9, 62 B.L.R. (4th) 157, 179 A.C.W.S. (3d) 40; Montreal Trust Co. of Canada v. Call-Net Enterprises Inc. (2004), 2004 7642 (ON CA), 70 O.R. (3d) 90, [2004] O.J. No. 631, 183 O.A.C. 306, 40 B.L.R. (3d) 108, 129 A.C.W.S. (3d) 90 (C.A.)

Johanna Braden, for appellant. Trevor Lawson, for respondent.

The judgment of the court was delivered by

[1] GOUDGE J.A.: -- The appellant Mario Miranda became the chief financial officer ("CFO") of the respondent Lake Shore Gold Corporation on June 1, 2007. On the same day, Miranda and Lake Shore entered into an agreement called "Change of Control Agreement -- Officer" (the "Agreement"). It entitled him to a payment of $175,200 if he ceased to be an officer of Lake Shore within six months of a change of control of the company. After he was terminated as CFO on April 14, 2008, Miranda sought a declaration that he was entitled to this payment.

[2] The application judge interpreted the Agreement to require that Miranda cease to be CFO after the change of control in order to receive the payment. Since he was terminated shortly before the change, he was not entitled to it.

[3] The appellant challenges that interpretation. He argues that, properly interpreted, the Agreement entitles him to the payment if, as happened here, his termination as CFO and the change of control of the company occur within six months of each other. With respect to the application judge, I agree. I conclude that the Agreement not only applies where the change of control comes first, but also applies where the officer is terminated in the six months before the change of control. I would therefore allow the appeal.

[4] None of the material facts are in dispute. The facts necessary for the purposes of the appeal begin with the Agreement. It was prepared by Lake Shore and contains only ten paragraphs.

[5] The focus of the debate in this court is the first sentence of the first paragraph. It reads as follows:

In the event the Officer ceases to be an officer of the Corporation for any reason within six months of the date on which control of the Corporation changes (which event is called "Change of Control"), the Corporation shall pay to the Officer $175,200 (the "Change of Control Payment").

[6] The balance of the first paragraph defines when a change of control is deemed to occur. While that date was contested at first instance, the application judge determined that the change of control took place on June 17, 2007. That is not contested in this court.

[7] The only other paragraph of importance is para. 2:

Notwithstanding paragraph 1, Change of Control does not include removal of the Officer as an officer of the Corporation for cause. This Agreement [page517] shall terminate immediately upon a voluntary resignation of the Officer as an officer of the Corporation unless a Change of Control occurred first.

[8] The change of control came about pursuant to the Strategic Alliance Agreement between Lake Shore and Hochschild Mining Holdings Ltd. made on February 22, 2008. The announcement of this alliance made clear that, subject to regulatory approval, Hochschild would make two significant purchases of shares of Lake Shore. The first took place on February 25, 2008, and the second on June 27, 2008. The application judge found that as a result of these purchases, as of June 17, 2008, Hochschild became the new "Control Person" of Lake Shore and a "Change of Control" of the company was effected for the purposes of the Agreement.

[9] The purpose of the Strategic Alliance Agreement was to obtain significant new capital to allow Lake Shore to develop its mining properties. Lake Shore would have a new president who proposed to take it in a new direction. The Strategic Alliance Agreement required Lake Shore to commit to keeping this new president for five years if possible.

[10] The new president began on March 1, 2008. Shortly thereafter, without telling Miranda, he began a search for a new CFO, something he believed was needed to fulfil his plans for the new direction for Lake Shore, given the new strategic alliance. However, he needed Miranda to complete Lake Shore's current financial statements. This, and the requirement that there be a resolution of the board of directors terminating Miranda, meant that his termination as an officer of Lake Shore did not take place until April 14, 2008. There is no suggestion that this termination was for cause. Miranda simply did not accord with the post-strategic alliance direction being set for Lake Shore.

[11] As a result of these circumstances, Miranda asserted that he was entitled to the payment provided for by the Agreement. When Lake Shore refused, he brought this application seeking a declaration of his entitlement.

[12] His application was dismissed. The application judge first concluded that there had been a change of control for the purposes of the Agreement and that it had taken place on June 17, 2008.

[13] The application judge then turned to the meaning of "within" in para. 1. He found that when the Agreement is read in its entirety, the clear intention of the parties is ". . . to ensure the retention of Miranda's services as CFO in the event that a change of control may occur in the ownership of Lake Shore by incenting him to stay with the Company during the period of change". He accepted the general purpose of change of control agreements approved by this court in Montreal Trust Co. of Canada v. Call-Net Enterprises Inc. (2004), 2004 7642 (ON CA), 70 O.R. (3d) 90, [2004] O.J. No. 631 (C.A.) [page518] that they provide a protective mechanism for both the corporation and the executive, with the business purpose of retaining key executives through the period of uncertainty that surrounds the process of changing control.

[14] Having regard to this intention, the application judge held that the meaning of "within" in para. 1 is clear and unambiguous and means the six months "since or after" the date of change of control. He held that this was consistent with the commercial interests of the parties at the time of the Agreement and found no inconsistency between this interpretation and any other provisions of the Agreement, particularly para. 2. He concluded that to interpret "within" to include the six months before the change of control would be contrary to the intention of the parties. Since Miranda's termination as CFO did not occur in the six months after, but rather took place before the change of control, he held that Miranda was not entitled to the payment. Analysis

[15] The facts are uncontested. The issue is the meaning to be given to the first sentence of para. 1 of the Agreement. Since this is akin to a question of law, not dependent on a nuanced interpretation of disputed facts, both parties assert that the standard of review to be applied in this court is correctness. I agree (see Bell Canada v. The Plan Group (2009), 2009 ONCA 548, 96 O.R. (3d) 81, [2009] O.J. No. 2829 (C.A.), at paras. 19-26).

[16] I also agree with the application judge that, in this case, the task requires an examination of the words in para. 1 read in the context of the entire Agreement and the shared intention or commercial purpose reflected therein. However, I disagree with the conclusion he reached.

[17] The most important words are those in the first sentence of para. 1 of the Agreement. To repeat, they are as follows:

In the event the Officer ceases to be an officer of the Corporation for any reason within six months of the date on which control of the Corporation changes (which event is called "Change of Control"), the Corporation shall pay to the Officer $175,200 (the "Change of Control Payment").

[18] These words describe two events, namely, ceasing to be an officer of Lake Shore, and change of control of the company. These events must occur within a period of six months as a precondition to Miranda's entitlement. Nothing in the nature of the events themselves suggests that the change of control must precede ceasing to be an officer. The change of control need not cause the individual to cease being an officer. The Agreement contemplates that this can happen "for any reason". Requiring that one event occur "within six months of" the other simply [page519] means that no more than six months can separate them. In other words, they must occur within six months of each other.

[19] Thus, looking only at the language of para. 1, it not only applies where the officer resigns or is terminated in the six months after a change of control. It also has application where the cessation precedes the change of control by six months or less.

[20] This meaning is supported by the second sentence of para. 2. That sentence provides that, if the cessation precedes the change of control, the Agreement terminates if the cessation occurs through voluntary resignation. In that circumstance, no payment entitlement arises. If para. 1 did not encompass the cessation coming first, this sentence would be meaningless and unnecessary. However the parties have expressly addressed the situation in which the cessation precedes the change of control and have explicitly provided that cessation by way of voluntary resignation does not attract the payment. By implication, cessation as an officer through termination in the six months preceding change of control (i.e., what happened here) is covered by the Agreement and triggers the right to payment.

[21] The respondent looks to para. 3 of the Agreement to support its position. That paragraph provides that the change of control payment will be made "within 15 days of" being notified that a change of control has occurred. Clearly, notification of the change of control must precede payment, because only after notification do all parties know of the obligation to make the payment. The required order of the two events described in para. 3 is dictated by the nature of those events, not the "within 15 days of" language. By contrast, the nature of the two events described in para. 1 does not dictate the order in which they must occur.

[22] I agree that the intention of the parties reflected in this Agreement is to provide a protective mechanism for both Lake Shore and its officers to retain the officers and ensure their loyalty during the time of uncertainty that arises during a period of change of control. However, that time of uncertainty does not just follow the change of control. It also includes the period during which the change is being brought about.

[23] The meaning contended for by Miranda is fully consistent with this commercial purpose. It is not only the payment that the company must make if the officer resigns or is terminated in the six months after the change of control that provides comfort and incentive to the officer to stay during the period of uncertainty. The payment that company must make if it terminates the officer in the six months leading up to the change also provides the officer with comfort and incentive to stay, knowing that [page520] he or she is protected against being terminated without cause as part of the change of direction for the company that often accompanies the unfolding change of control.

[24] The latter is exactly what happened here. Despite being aware of the impending change of control, Miranda stayed to do his work as CFO until April 14, 2008.

[25] In summary, I conclude that the respondent's obligation to make the change of control payment to the appellant arises if the appellant's ceasing to be an officer and the change of control occur within six months of each other, regardless of which occurs first, except only if he resigns before the change. This reflects the words used in paras. 1 and 2 of the Agreement, read in light of the entire Agreement, and serves the intention and commercial purpose of the parties. On these facts, therefore, the appellant qualifies for the payment.

[26] I would allow the appeal and grant the order sought by the appellant.

[27] The parties agree that if we were to allow the appeal, the appellant is entitled to costs of the application on a substantial indemnity basis, which we fix at $15,000, inclusive of disbursements and applicable taxes. The appellant is also entitled to his partial indemnity costs of the appeal, which we fix at $7,000, inclusive of disbursements and applicable taxes.

Appeal allowed.